I agree that reforming existing institutions makes more sense than creating new institutions plagued by some of the same problems, but under different leadership--and that would probably be plagued by some new problems as well.

I consider the AIIB and similar attempts by BRICS evidence of a growing frustration with Western, i.e. US-led financial institutions that in their shortsightedness refuse to look and work towards a just, sustainable, and therefore, stable international monetary and financial system.

Through increased antagonism of both systems with its associated reduction in economic and social well -being leaders of both systems may start thinking of transformational international institutions that deal with the real problems of climate disruption and unsustainable development.

Those thinking in that way may be interested in learning about a carbon-based international monetary system as proposed in Verhagen 2012 “The Tierra Solution: Resolving the climate crisis through monetary transformation” and updated in www.timun.net.

...one Chinese friend has told me recently that, "The Chinese Communist Party is empty." ...Businessmen are complaining that they are being squeezed by local governments which are hocked to the eyeballs over massive infrastructure projects which will not show a return for quite some time. Local officials have already appropriated peasants' land for collateral, and bled them dry. And they can't sell the land that's left, because it's practically worthless. It always has been －its value was inflated in order to get those juicy loans....Now that the county piggy-bank is empty, the middle-class is asking where will the money come from to pay the interest on the huge loans that were taken out to finace these grand schemes? (From Brian Hennessy, Reading the tea-leaves in China/http://www.onlineopinion.com.au/.)

Good observations but only time will tell. AIIB is only a piece of the action - that is, will probably offer finance, advisory, and assistance for investments in infrastructure. Promotion of good governence has to be part of the plan for the new bank.

I would like to draw your attention to the work of Mushtaq Khan on governance and aid on the South Asia region. Unlike Rogoff who believes that countries should either qualify for development support by having "good governance" or that poor governance retards growth and development, the evidence actually points to a starkly different reality. Global history has shown that no country in fact has experienced monumental growth by having followed any of the criteria of good governance that North American scholars or development agencies have imposed. From the US, Great Britain to Japan to Germany in the first wave of development had weak property rights systems, stole ideas from other countries, etc (See Ha-Joon Chang's 'Bad Samaritans') to South Korea, India and China in the latest wave of high growth countries post WWII period. Good governance as prescribed was not a prerequisite nor a requirement for high growth these countries have experienced. In Khan's latest work (http://m.ann.sagepub.com/content/656/1/59.abstract?rss=1) Bangladesh has experienced growth on account of it garment industry and has been a significant recipient of aid since 1971, though interrupted by internal conflicts at times, and has not followed the good governance Rogoff talks about. What Khan most importantly points out is that aid is more than a technical tool but requires a close understanding of the balance of power in countries and how the various groups in the country influence the distribution of aid or any type of support. Thus the political process becomes important in the type of impact that financial support could have. I totally disagree that the AIIB should only focus on knowledge sharing and not finance because of some perceived fear that opacity in procedure will reverse good will or the positive impact of support. What I do hope is that the AIIB DOES NOT FOLLOW THE ROUTE OF THE WORLD BANK AND IMF AND IMPOSE THESE STRINGENT AND UNREALISTIC CONDITIONS THAT ARE NOT SUPPORTED BY EVIDENCE ON COUNTRIES THAT CANNOT MEET THEM or if they attempt to meet them their growth prospects will be diminished. Reforms are important but it is the nature and type of reforms which affect the political economy and power distribution to enable more groups to benefit from aid money, that is important.

The west has indulged only in hollow promises with regard to reforming the existing institutions. The World Bank president is chosen by the US, the loans are lent to advance the US's interests, and the voting rights in IMF are yet to be reformed. If the AIIB succeeds in maintaining a democratic order and not impose its political will on the debtor countries, it can lead to it replacing the world bank or at the very least reforming the world bank and imf to reflect the new realities. The US is only trying to maintain its hegemony but it has to realise, the 21st century will be in Asia and not the atlantic or european regions.

Your essay is a fine example of the intellectual and the pragmatic. And I strongly agree with what you've written.

How China might best spend its money:

If there is one thing that lifts people out of poverty and contributes to social good and GDP, it is energy.

'Bang for the buck' when we electrify communities (whether by electrical grid connection, or by co-generation; Read, a 'standalone grid' not necessarily connected to the national grid) that is the quickest and surest way to alleviate poverty and increase money velocity in a community or region.

China would be wise to invest the first money they lend out towards modular, renewable energy power plants for communities that either a) don't have electrification yet, or b) have dirty coal servicing their communities where entire communities live in heavy smog day after day, for decades.

Modular, hybrid renewable energy power plants are the way to go here. Such power plants should be modular, first off, because this dramatically lowers the cost of all the following power plants, except of course, the first prototype plant.

A modular, hybrid renewable energy power plant of 10MW that gets 65% of its daily power from solar panels, and 35% of its daily power from wind turbines, would provide the right balance of day/night power.

In regions where there is little wind availability, simply substitute that 35% generation with a natural gas fired generator. These do not have to be turbines, as Caterpillar, GE and others make quite wonderful natural gas powered engines to generate electricity.

The huge benefit of these engines compared to gas turbines, is that they do not need hours to come online, they ramp up to full power in minutes, even seconds with the modern technology of today.

The natural gas for these small generator sets is available from nearby landfill sites, which harvest the methane off-gas and burn it to produce electricity, neatly solving many problems at once.

Durban, South Africa is an amazing success story on this account:

"Durban, South Africa, a city of 3.5 million people has created a huge Waste-to-Fuel landfill power plant that provides electricity to more than 5000 nearby homes.

Durban Solid Waste receives 4000 tons of trash each weekday which produces some 2600 cubic metres of gas every day of the year."

GE has natural gas fired power plants that arrive in 4 large shipping containers and take mere hours to install and connect, if all the permits, etc. are in order. I think an early record was 22 hours from arrival to power production for the GE Clean Cycle Waste-to-Fuel power plant.

Want to improve a community by electrifying it quickly? That's how it's done.

"One GE Clean Cycle Waste-to-Fuel power plant unit can generate 1 million kWh per year from waste heat and avoid more than 350 metric tons of CO2 per year, equivalent to the emissions of almost 200 cars."

Powering non-electrified communities, or replacing dirty coal power generation that makes locals very ill, with clean power generation via solar/wind hybrid power plants or solar/natural gas 'co-generation' power plants will allow China and other SE Asia nations to leap forward by 10-15 years, in the space of months.

That is the difference between 'investment' in communities, as compared to 'throwing money at problems' to solve them.

That's what the AIIB needs to be best at in SE Asia. It's also what other development banks need to do more often.

Final note: If the AIIB is purchasing U.S. and European equipment to provide power to communities, it's almost certain that American concerns will dissipate.

Anyone who can reconcile citizen stake holding (democratic or republican government) with a functional infrastructure should get the Nobel Prize in Economics and in Peace. Who knows, maybe China’s AIB will do it! If so, hopefully they will share it with all countries, all of which are incompetent and clueless about this, and not just with its member-states.

The kind of Development Bank Asia needed was like European Investment Bank and the EBRD. The financial architecture that transformed the value creation process. So that Asia could become the First World like Europe. Not Third World for perpetuity. Whether AIIB succeeds like it's prototype CDB - now larger than the World Bank - only time will tell. India was designed to remain in the Third World forever - it's internal economic geography simply unable to create either a CDB or AIIB. The existing financial architecture within was obviously not the World's responsibility. Just like Europe took charge, China did take charge, while India could not. The value of AIIB and CDB lies in its capacity to transform Asia, like the two transformed China. Without them, India and rest of Asia would remain Third World in perpetuity.

I agree with your implication that any form of 'world bank' would be an improvement over the US run bank. Observation from working on the receiving end of the Tinkerbell directive from the Bank is a sufficient condition.

I may be reading too much into the plans for the AIIB but my impression is that we are talking about a much larger potential project. The concept of replacing, or adding as a different funding source to the IMF/ World Bank/ ADB options, is part of it, but creating an alternative currency base is a far more important factor for world trade.
There is an obvious dissatisfaction with the US dollar being dominant. The Euro has failed to provide an alternative - and gives every impression of becoming further out of touch with reality.
Whether China wishes to have the RMB become a reserve currency in its own right, or look to a combination of Asian currencies to act in a similar manner to SDRs, time will tell. What does seem to be clear, not least from the non-Asian applications for membership, is that many are more than ready to reassess the value of the dollar.
The danger for everyone is whether the value of the US bond market is similarly up for new thinking.

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